CoStar (NASDAQ: CSGP) has had two high-profile acquisition deals disappear in the last few months already: RentPath and CoreLogic. Acquisition has been CoStar’s growth strategy over the years, so this is a big chink in the company’s armor.
What’s going on and how does CoStar plan to adjust moving forward?
The two deals that were blocked
RentPath is CoStar’s greatest competitor in the online apartment search realm, hence why the Federal Trade Commission (FTC) blocked the deal. Although RentPath is a struggling company that recently filed Chapter 11 bankruptcy, the FTC determined that CoStar acquiring it would create all sorts of antitrust concerns. However, from a competitive pricing standpoint, this is likely good for landlords. On that note, take a look at what Dwellsy is doing. They’re a proptech startup that is flipping the model by making it free to list apartments for landlords.
Their other potential deal was with CoreLogic, a database containing nearly all U.S. property records, refreshed daily and dating back over 50 years. The FTC wasn’t involved here though; instead, CoreLogic took a deal from someone else for reportedly less money than what CoStar was willing to offer.
Acquisition as a growth strategy
CoStar’s clear growth strategy has been via acquisition. Last year, the company acquired mobile real estate platform Homesnap as well as Ten-X, a platform that identifies, markets, and auctions distressed properties. In recent years, CoStar has also bought Lands of America, STR, LoopNet, and Apartments.com. According to Crunchbase, CoStar has bought 30 companies altogether.
The FTC has made it clear from the RentPath deal that CoStar has to stop scooping up companies in the commercial real estate data space. CoStar’s CEO Andy Florance said, "We’re not going to go buy a company in a space in which we’re obviously direct competitors in an area where the FTC believes we have a lot of market share."
So what’s the plan?
This issue has the potential to begin a vicious cycle for CoStar. Morningstar Equity Analyst Yousuf Hafuda, said, "I think the targets they’re looking to acquire will be more hesitant to be acquired by them. They will have to be more cautious." Not only does CoStar have to worry about deals falling through, but it also has to worry about deals even happening in the first place.
Florance said that CoStar will continue to seek out new acquisitions but that they’ll have to explore other corners of the proptech universe that CoStar hasn’t yet touched or has yet to establish a presence in.
That is going to be easier said than done though. CoreLogic isn’t a direct competitor of CoStar, but the company avoided the deal just to be safe, according to Bisnow.
There are some other concerns as well. Even though Florence said "CoStar will never, ever, ever go into brokerage," its customers (which are brokerages) still have that fear. As an example, after CoStar reached the deal to acquire Ten-X, Cushman & Wakefield (NYSE: CWK) CEO Brett White voiced such concerns. He said that he couldn’t see brokerages continue to support CoStar if it becomes a competitor and that acquisitions like the Ten-X deal make it "feel like we may be getting closer to that inflection point."
The Millionacres bottom line
CoStar is on watch, which is probably a good thing if you’re a landlord. The FTC getting involved to keep prices competitive should bring a sigh of relief. For proptech companies looking to exit, though, CoStar might not be as rosy of an option as they had once thought.